When you know how to take care of your finances while you’re in school, once you graduate, everything seems a little less hectic. You won’t feel stressed about your bills, you won’t be upset about any surprise expenses, and you won’t find yourself saying, “Where did my money go?” The best part is you don’t need to be good at math or use any fancy budgeting apps to accomplish this, all you have to do is develop a good habit of planning out your spending before you spend money.
As students, we have a tendency to let our finances just be in the background of our lives. We may have a roof over our heads because we paid our rent. We may eat because we bought some groceries. And our bank accounts will adjust every time we get paid or spend money, but we will typically not have a good reason for why our bank accounts do what they do. This is how I lived for quite a bit of time and was convinced I had a budget just because I know what my bills are. The truth is, knowing your bills is not budgeting; it’s just being aware that you have bills without taking into account how much you are actually spending compared to how much you have available to spend.
To begin creating a true budget for your finances, let’s look at it from the opposite perspective. A budget is simply a way of determining where your money will go before you spend it. And this is not a guess, nor is it a reaction; it is a plan. When you create a budget, you are basically creating a roadmap for your future self regarding where your money will be spent and how much will be spent. If your future self deviates from your budget or makes a mistake, then that will happen, but you’ll be prepared for it.
Income seems easy to understand until you’re a student, because there can be so many different ways that you can have income as a student. Some of it is going to come from a paycheck, some of it is going to come from your savings account, some of it is going to come from an allowance or what most people think of when they say “student loans.” Regardless of what source it may come from, the same rule applies: it should be divided into monthly amounts. A large lump sum may feel like you are rich, while having a monthly limit will allow you to feel more realistic in terms of what you can handle financially.
There was a point in time where I was not employed due to my heavy course load; therefore, I could not earn any income through work. My only source of income was built off of money I had saved in the past, and student loans that were meant to provide me with enough money to sustain myself throughout several months, not just a weekend. When I learned to approach my entire amount of money saved and my student loans in the same manner, as if they were monthly paychecks, my perspective changed entirely.
Most people stop planning out their expenses after the first couple of times. At first, it may feel awkward to write down all the various things that you think you will have to spend your credit/debit cards on during the upcoming month. (Example: grocery shopping, rent, cell phone service, internet, dining out, random things for fun, and surprise expenses). It is likely that you will make mistakes when planning for your anticipated expenses; do not worry, this is a normal part of the learning process.
Eventually, everyone will have an uncomfortable moment where they realize their monthly expenses are greater than their income, which is a deficit, and it’s the budget’s way of saying “whoaaaa” However, if you ignore your deficit, you’re allowing credit card debt to sneak up on you and stick around for too long.
When the month ends, this is the part that no one posts about. You sit down, and now you get to see what actually happened. You might find that your grocery costs were lower than expected. Or maybe, restaurant costs were higher. Regardless, you shouldn’t feel guilty about anything; you should look at it as an opportunity to learn. Each “mistake” is just another piece of data that you add to the next month’s plan.
The part that may seem counterintuitive at first but will soon become clear is that budgeting isn’t restrictive—rather, it empowers you with the freedom to spend. The reason why it empowers you is that if you create your budget with a specific amount already earmarked for entertainment transactions, you will feel good about spending that money because it was already in your plan. Therefore, when things come up that are not included in your budget, you can confidently say “no” because it already has been predetermined.
Many people will tell you why they dislike budgeting. People view their budget as restrictive. For me, that is not correct; the only thing that you lose is impulsive spending. To be honest, impulsive purchases tend to be what you ultimately regret.
If the idea of creating a financial plan stresses you out, please remember to not make it harder than what it has to be. Create a messy budget and incorrect. Make adjustments the following month and continue to change it each month, over the years, you’ll stop asking yourself “where did my money go” since you will already know.
Financial habits develop subtly for people during their college experience long before they realize their financial habits will yield positive results financially.
